Monetary Policy and Commercial Lending Rates Nexus: Evidence from Czechia

Abstract

The paper investigates the interest rate pass-through in Czechia during different monetary policy stances from April 2005 to February 2020 using structural vector auto-regressive models. The effects of changes in the European money market rate on the Czech money market rate are also observed. We estimate how the changes in monetary policy setting are transmitted to commercial lending rates for both corporate and households. The results show that the responsiveness of Czech money market rate to shocks in the Euro Area money market rate is no longer true. The pass-through from the official policy rate to the money market rate was confirmed; however, the reaction varied during different monetary policy stances. After the zero lower bound period, shocks in money market rate were found to be more important for rates on corporate loans up to 30 mil CZK. The shocks in confidence significantly contributed to the variance in changes of rates on corporate loans up to 30 mil CZK and rates on consumer loans when the monetary policy tightened after the zero lower bound period.